ASX looking to replace CHESS with blockchain

By Jim Bulling and Michelle Chasser

The Australian stock exchange ASX has announced that it has partnered with a US-based firm to develop distributed ledger technology, more commonly referred to as blockchain. The ASX is planning to develop the ledger technology for post-trade services such as clearing and settlement of the cash equities market. Unlike the bitcoin blockchain which operates as a public ledger, the ASX will use a private network which will only allow parties with permission from the ASX to participate.

The current system, the Clearing House Electronic Sub register System (CHESS) which the ledger technology would replace has been used for clearing and settlement of the ASX without much change since it was first implemented in 1995.

There are a number of potential benefits in using ledger technology instead of a system like CHESS. Most notably is the simplification and increased speed of settlement as well as reductions in cost. It has been proposed that near real time settlement may be achievable. Such changes could have a flow on effect to reduce transaction costs for investors.

This ASX is not the first stock exchange to explore the possibilities of blockchain. Last year the US based NASDAQ launched a pilot program which uses ledger technology to effect transactions in the NASDAQ Private Market.

The decision whether to replace CHESS with a distributed ledger will be made in 2017 after allowing stakeholders to assess its benefits and implications.

The ASX media release can be found here.

Copyright © 2019, K&L Gates LLP. All Rights Reserved.